CFDs

CFDs

What are CFDs?

CFD stands for Contract for Difference. CFDs allow you to open a contract for the difference of the price of an asset, from the point of opening to when you close. They are a versatile way to trade a wide range of markets, but it’s important to understand the risks too.

Go Long or Short

CFD trading allows you to take a position on the future value of an asset – so CFDs are very flexible and you can trade whether you think the market will go up or down. But remember, because you’re not physically trading in the underlying market, you never actually own any assets.

Long Position

If a trader believes the price of the underlying asset is rising, she/he would open a “long position”. For a long position to make money, the closing price must be above the opening price.

Short Position

If the trader believes the price of the underlying asset is falling, she/he would open a “short position”. For a short position to make money, the closing price must be below the opening price.

If a trader predicts correctly on the market’s direction and the closing price at the time of expiry is on the correct side of the opening price, the trader is paid the difference. A trader who predicts incorrectly on the market’s direction loses the difference.

Main Characteristics

Derivative Financial Instruments

CFDs are derivative Financial Instruments – their price is dependent upon or derived from one or more underlying securities.

Underlying Assets

24FX offers CFDs on a variety of underline assets, such as stocks, commodities, indices and currency pairs. Remember that no underlying asset is owned; it is simply a prediction on an underlying asset’s direction.

No Delivery

The trader has no rights or obligations in respect to the Underlying Assets relating to CFDs. There is no delivery of the Underlying Asset. The payoff is cash settled.

Over The Counter

Transactions entered in CFDs with the 24FX are not undertaken on a recognized exchange/regulated market, rather they are undertaken over the counter (OTC) and as such they may expose the trader to greater risks than regulated exchange transactions/Orders.

Yes. There are several ways that you can monitor your exposure to risk, as well as a range of risk management tools such as stop loss orders available on our platform. Please Click Here for more information.

Commissions and fees

There are low commissions and fees for CFDs transactions traded with 24FX.

Rollover

Rollover is the interest paid or earned for holding a position overnight. Each currency has an interest rate associated with it, and because forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates. If the interest rate on the currency you bought is higher than the interest rate of the currency you sold, then you will earn rollover (positive roll). If the interest rate on the currency you bought is lower than the interest rate on the currency you sold, then you will pay rollover (negative roll). Rollover can add a significant extra cost or profit to your trade.

24FX automatically calculates and reports all rollover for you.

Swap Rate

Further to the above, the value of opened positions in some types of CFDs is increased or reduced by a daily financing fee “swap rate” throughout the life of the CFD (i.e. until the position is closed). Financing fees are based on prevailing market interest rates, which may vary over time.

Swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

You can avoid CFD rollover by closing your open position before the rollover date.

Factors affecting the value of CFDs

The most influential factor of the price of a CFD is the market price of the underlying asset. In general, as the price of the underlying increases, long positions gain value and short positon lose value. Conversely, as the price of the underlying decreases, long positions lose value and short positions gain value. Other factors are the:

Time Until Expiration

Volatility of the price of the Underlying Asset

Market Impact

Size of Order

Type of CFD

Advantages of CFDs

Ability to take both long and short positions

No borrowing costs, since the Underlying Assets are not actually been purchased or sold

Ability to use leverage

Possibility to profit during a rising or falling market by opening a long or short position, respectively

Main Risks

CFDs are a simple way to trade price fluctuations in multiple global markets, but a trader needs to understand the risks and rewards of these before start trading.

Leverage and Gearing

Margin Requirements

Swap Rates

Third Party Risks

Counterparty risk

Technical Risks

Abnormal Market Conditions

Foreign Currency Risks

Conflicts of Interest

Volatility/Market Risk

Slippage

Suspension of Trading

Liquidity

Risk Warning: CFDs carry risk in the same way that any financial product carries risk – if the market moves against you, you lose money. However, the risks associated with CFDs can be greater because they are leveraged products. For more information about the risks involved, please Click Here.

Trading Platform

Through MT4 you can create your own personal workplace. Fully equipped with both back-office reporting functions and front-end terminals, this trading platform gives you access to the most essential tools and resources needed to analyze the market and to start trading. The MT4 is the answer to your needs; it’s fast and effective, user friendly and flexible and it has been tested worldwide and chosen as a favorite amongst traders and institutions. Click Here to download the MT4

Minimum Trade Size

The minimum trade size in the MT4 is 0.01 lots. For certain commodities the minimum trade size may be higher, please contact your account manager for more information.

RISK WARNING: TRADING CONTRACTS FOR DIFFERENCES (“CFD’S”) AND FOREIGN EXCHANGE (FOREX) AND USE OF THE TRADING PLATFORM WHICH ALLOWS HIGH LEVERAGE INVESTMENTS IN CFD’S AND FOREX CARRIES A HIGH LEVEL OF RISK TO YOUR INVESTMENT. MAKE SURE YOU FULLY UNDERSTAND THE RISKS INVOLVED AND TAKE ADVICE IF NECESSARY. FX/CFD TRADING CARRIES HIGH RISK AND IS NOT SUITABLE FOR ALL INVESTORS. LOSSES CAN EXCEED DEPOSITED CAPITAL. CLICK HERE TO READ THE FULL RISK WARNING.24FX IS A BRAND OWNED AND OPERATED BY RODELER LIMITED (HE 312820), A FINANCIAL SERVICES COMPANY REGISTERED IN CYPRUS AND AUTHORIZED AND REGULATED BY THE CYPRUS SECURITIES EXCHANGE COMMISSION UNDER LICENSE NUMBER 207/13. RODELER LIMITED IS LOCATED AT 39 Kolonakiou Street, FREMA PLAZA, First Floor, 4103 Ayios Athanasios, Limassol Cyprus